Child benefits changes - explanations and possibilities
From this month changes have been made to child benefit. Brockworth resident Daniel Boden, a financial planner at English Mutual in Cheltenham, explains the changes, the repercussions and some of the possibilities
CHILD benefit, which was previously paid to the parent or carer of every child, has been reduced for those earning more than £50,000 and those earning more than £60,000 no longer qualify.
And many families who are labelled as being 'better-off' but still have large outgoings, such as a high mortgage, will find losing what could be up to £1,300 a year in income difficult.
The new tax is calculated on the highest earner, not the combined household income. So if one parent earns over £50,000 then some of the benefit will have to be paid back, if he or she earns over £60,000 it will have to be paid back in full. However, if both parents earn £49,000, then they will continue to be entitled to receive the full amount of child benefit paid.
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There are simple steps which some people are choosing to take to help. Your employer may run a salary sacrifice scheme which enables you to replace taxable earnings with non-taxable benefits, such as childcare vouchers or other health scheme benefits. Salary sacrificing money could enable you to effectively reduce your salary to less than £50,000.
Similarly increasing your pension contributions may offer a solution. If you earn £53,000 and make £3,000 of pension contributions, you will reduce your taxable income to £50,000. Making increased pension contributions have the long-term benefits of ensuring you are saving well for retirement.
The £50,000 threshold is not based on net earnings, it includes all taxable net income, so income paid from investments, rental properties, bonuses and benefits in kind will also be included. If your investments and savings are producing a taxable income then you can consider transferring those assets to your spouse if they earn less than you, with a view to reducing your income to the £50,000 threshold.
You need to seek financial advice before doing this as transferring assets to another person can mean you no longer legally own the money if you are not married and this can affect other taxable interests.